Composition scheme for small taxable persons under GST

Composition scheme for small taxable persons under GST

Small taxable persons do not have sufficient knowledge and expertise to comply with the requirements relating to records and accounts under GST.Hence, for them, a simplified composition scheme has been provided, vide clause 8 of GST Model Law, 2016.

The scheme is available to those whose aggregate turnover in a financial year does not exceed Rs. 50 lakhs. The scheme is optional.

All registered taxable persons having same PAN number should opt for the composition scheme.

The taxable person opting for composition scheme will have to pay a fixed percentage of gross turnover as tax, which shall not be less than 1% of the turnover. The rate will be much lower than the normal GST rate.

They are not entitled to any input tax credit.

Taxable persons whose all supplies of goods and services are within the State only will be eligible for the simplified scheme.

Taxable persons who opt for composition scheme will not be allowed to charge GST in their invoice. They cannot show GST in their invoice.

Meaning of ‘aggregate turnover’– “Aggregate turnover” means the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be- Explanation.- Aggregate turnover does not include the value of supplies on which tax is levied on reverse charge basis and the value of inward supplies – clause 2(6) of GST Model Law, 2016.

Taxable persons not eligible for composition scheme

As per clause 8 of GST Model Law, 2016, following taxable persons will not be eligible for composition scheme —

(a)

Taxable persons who effects any inter-state supplies of goods and services

(b)

Taxable persons who want to show CGST or SGST in their Invoice (If they show GST in their invoice, customer will be able to avail its input tax credit)

(c)

Taxable persons having same PAN who intend to opt for scheme for only some of the businesses

Disadvantages of composition scheme under GST

The composition scheme is simple. Small taxable persons are not required to maintain elaborate records of receipt of supplies of goods and services. This results in cost saving to them.

For GST department also, assessment is easy. However, the taxable person under composition scheme cannot avail any input tax credit. He cannot charge GST in his invoice. Hence, customer of such taxable person cannot avail the input tax credit. Thus, the Vat chain is lost and input credit is lost.

Hence, the scheme is mainly useful to taxable persons who are making direct sale to consumers who cannot avail any input credit, or to those cannot maintain detailed records required for input tax credit purposes.

Switch over from normal scheme to composition scheme and vice versa

Switch over from normal scheme to composition scheme and vice versa is permissible and specific provisions have been made in GST Model Law, 2016 for this purpose.